Thoughts To Remember

Crypto Currency 101 – #bitcoin

Is it important?

Bitcoin leverage a powerful and new technology. It is not controlled or issued by any one organization (e.g. bank or government). Instead, it is an open network which is managed by its users. In a similar way that email and WhatsApp improved communication by making it fast and cheap, bitcoin is an improvement on existing payment methods which were not designed for the internet era.

What is bitcoin?

Bitcoin is a decentralized, anonymous, digital-only currency that’s lately gotten a lot of public attention. It was originally developed in 2008 and like in any good mystery, someone using the alias “Satoshi Nakamoto” published a paper describing how Bitcoins could work. (There is a very interesting story about this guy too. He must be very smart but, has never come forward to claim ownership, or any part in revenue.) Just one year later, at 2009, they started being traded and mined. In short, bitcoin represents a way to transfer money anonymously and at almost no cost. And since it’s an arbitrary currency with no nationality attached to it, you’re free to exchange it with anyone in the world. Since Bitcoin’s core protocol is viewable by anyone, it has been vetted by thousands of security researchers around the world and has proven to be robust and reliable.

What is Money?

Resources are finite, as such, they hold explicit value to a people. Most resources are physical. and such, needed to be traded in a physical form: diamonds, gold coins, chickens and bikes. At some point, it becomes too difficult to physically transact those objects, and it’s easier to agree, collectively, on the value of notes (=cash) instead of gold. As we know today, it got many advantages. Credit cards and modern banking basically gave us another abstraction layer on top of cash/gold. There is a centralized resource which defines who owns what resources, and all of these trades are made virtually. This is the backbone of why bitcoin is a valid idea. It’s the idea that we agree on… nothing needs to be tie directly to physical goods (e.g. gold in the basement of the fed).

Where do they come from?

Think about a diamond: You can buy it or mine it.
Here we also got two options:

Be the miner. You do this by using your computer to hunt for 64-digit numbers. By having your computer repeatedly solve complex mathematical puzzles, you’re competing with other miners to generate the number that the Bitcoin network is looking for. If your computer generates it first, you receive Bitcoins.
The Bitcoin system is decentralized and programmed to generate a fixed number of Bitcoins per unit of computing time. It is also self-sustaining, coded to prevent inflation, and encrypted to prevent anyone from disrupting its code. In the year 2140, the total number of Bitcoins in circulation will be capped at 21 million.

So, how much is a bitcoin worth today?

You’ll need to check it out in Google. You just need to type: “bitcoin in usd”.

Why are they anonymous?

Bitcoins are pseudo-anonymous because they’re built upon a decentralized system. The bitcoins themselves are anonymous. The wallets are not. Here is why: The base algorithm creates anonymity, but, as the recent court cases show, if your bitcoin wallet is identified and attached to your person, then someone can go through and track every transaction you’ve been a part of. Bitcoins exist entirely on their own because there’s no central infrastructure to shut down. The anonymity might be an asset to someone looking to buy something they don’t want their name attached to. You’re “identified” by nothing more than your Bitcoin wallet address — a string of randomized letters and numbers. There are absolutely no identifying characteristics beyond that. For the paranoid dude, you can simply create a new wallet for each transaction.